Rolling a dice on a spinning roulette wheel is probably as good a tool as any for predicting the course of the crypto markets over the course of 2022. There are however five key things to watch out for in this nascent market which can be expected to exert some influence on prices; business adoption, new investment products, regulatory activity, environmental progress and central bank competition.
If crypto starts to be used as a means of exchange between businesses and consumers, then that strengthens the bull case. Such adoption needs to take place in a meaningful way though, rather than as a marketing gimmick, whereby companies accept payment in crypto and then immediately convert it into traditional currencies. Likewise, new investment products could open up further liquidity for cryptocurrencies and help to establish them as a new asset class for investment managers, which would be a positive step for crypto. In both these cases, the volatility of crypto is a major sticking point which makes it hard to see much progress being made, when companies have bills to pay in dollars, euros and pounds, and likewise big funds need to report back to their investors in traditional currencies.
Laith Khalaf, head of investment analysis at AJ Bell, said: “Regulatory activity is likely to be negative for crypto. It turns out regulators don’t like the idea of a financial system which can be used to launder money, scam consumers, and could ultimately lead to heavy losses amongst investors. Crackdowns in India and China could be repeated elsewhere, and more broadly regulators and governments are going to turn their beady eyes on crypto, as it becomes more enmeshed in the traditional financial ecosystem. Central banks, including in the UK, are also looking at launching their own digital currencies, which would be negative for crytpo as these could usurp some of the perceived benefits of Bitcoin et al, such as speed of payments and transaction costs, particularly across borders.
“Finally the environmental piece of the puzzle could swing either way, with the Tesla CEO, Elon Musk, being the somewhat unpredictable bellwether on this particular issue. Tesla made some bold plans to facilitate crypto payments for cars at the beginning of 2021, but rowed back over concerns about the environmental impact of crypto mining. Musk said Tesla would resume its plans once mining transitions to more sustainable energy, and already this is starting to happen. Watch this space, or more specifically, Elon Musk’s twitter feed.”